The Crosby Group & Kito Corp. to combine both businesses16 May 2022
The Crosby Group and Kito Corporation have entered into a definitive agreement to combine both businesses, expected to be completed in the second half of this year, subject to customary closing conditions and regulatory clearances from relevant authorities.
Until close, The Crosby Group and Kito Corporation will continue to operate as separate, independent companies.
The deal is expected to allow the two companies to better serve customers; additional investment in products, people, and facilities; a broader portfolio of products across a global landscape and increased levels of service, support, and training.
“This is an extraordinary opportunity to bring together two companies with differentiated, industry-leading capabilities, to create exceptional value for all stakeholders: team members, channel partners, end users, and communities. We have long respected Kito Corporation as they exemplify our core values of safety, reliability, and innovation and are thrilled to combine with them to provide best-in-class products, solutions, and services for customers worldwide,” said Robert Desel, CEO, The Crosby Group.
“The strategic wisdom and industrial logic of this combination are compelling. It will pair the highly complementary product portfolios of The Crosby Group and Kito Corporation and allow customers access to a broad selection of lifting and material handling solutions from one trusted manufacturer. Together, the companies will be able to accelerate innovation through increased investment in new product development and enable end users to achieve higher levels of efficiency and safety through better technical, application, and training support from a combined business.”
Yoshio Kito, CEO, Kito Corporation added: “We believe this combination delivers tremendous value for all stakeholders. We couldn’t have imagined a better partner and we are confident that this combined business will build upon its great brands to best serve our customers, team members, and communities. We will work together to develop and expand our product offerings, differentiate ourselves based on our customer first principle, and enhance our presence as a global leader.”
In a statement Kito added: “Kito and Crosby have historically faced similar trading conditions including a Covid-led market disruption, and longer-term demand volatility. More recently, in the current supply chain environment, in which Covid has led to a slump in capital investment in infrastructure, industrial enterprises, and the like, while there are cost increases due to the impact of inflation on labor costs, raw material pricing, transportation costs, and the like, they have faced and understand the importance of navigating similar challenges, including shortages of raw material such as steel, and inflation leading to increased raw material costs, repair componentry costs, and freight and packaging costs.
“The parties believe the combination of the [two companies] would provide more stable operational resources and flexibility to help manage these dynamic headwinds in the form of capital to invest in the business after the Business Combination, sharing practices from each of the companies of Crosby Group and Kito Group to ensure even better safety practices, and product innovation and sharing of ideas by employees, positioning the combined company to be better equipped to serve customers, employees, and communities in the face of supply chain challenges and inflationary pressures.
“As a result, the parties believe the Combined Group would be able to maintain better quality created from sharing manufacturing practices, and achieve better customer service from sharing talent and greater combined experience with servicing customers than the parties could achieve on their own. Additionally, the Combined Group would likely be able to utilize their complementary capabilities in new product development to create innovations for new and existing customers of the parties.”
Specifically, Kito Group has expertise in crane applications and Crosby Group has expertise in rigging hardware applications (meaning hardware attached to products for use in ensuring safety and in lifting and hoisting), which are complementary product areas within the lifting and securement hardware industry.
Moreover, the parties believe the Combined Group can use their complementary geographic presences such as Crosby Group being headquartered in the U.S. and Kito Group being headquartered in Japan, giving the Combined Group better presence globally to service customers across the globe to add further value to employees, customers, suppliers and communities, and to promote sales of the products across a broader geographic landscape to better serve customers.
In terms of the background to the acquisition, Crosby and Kito’s senior management teams initiated a dialog in early June 2021 for the purpose of seeking possibilities of M&A or other business alliances.
Following these initial strategic discussions, Kito and Crosby decided to begin negotiation for a potential combination.
Finally, Crosby submitted a legally non-binding letter of intent to Kito on February 14, 2022 proposing a business combination of the Parties through a Tender Offer for Kito shares followed by a squeeze out (the “Letter of Intent”).
The timing of the submission of the Letter of Intent to Kito was motivated by the current macroeconomic environment such as material shortages and inflationary pressures, which Crosby believed to be well-suited to bring together the Parties because the Combined Group will have access to more resources to solve these challenges.
Kito fiscal results for 2021 (ended March 31, 2022), reported that despite intermittent constraints on economic activity in certain countries and regions as a result of the coronavirus pandemic, overall demand recovered sharply centered on Western countries, while the Japanese market continued to recover at a moderate pace.
At the same time, the rapid recovery in demand led to congestion in freight transportation, as well as a sharp increase in costs for natural resources, energy, raw materials, parts and other components.
In addition, towards the end of the period, the conflict between Ukraine and Russia had a major impact on the global economy.
Under such conditions, Kito Group continued to increase production capacity in order to capture the firm demand in the North American and European regions, and focused on maintaining stable customer service by securing its supply chain, including material suppliers and transportation routes.
As a result, both revenue and earnings increased significantly from the previous fiscal year. Net sales amounted to ¥62,506 million (up 20.7% year on year), with operating income of ¥6,184 million (up 38.7%), ordinary income of ¥6,415 million (up 41.0%), and net income attributable to owners of parent of ¥4,563 million (up 94.7%). Net sales, ordinary income, and net income attributable to owners of the parent reached record highs.
It stated, in terms of the Future outlook; “Looking at the current external environment, the international situation in Europe and elsewhere is increasingly uncertain. The appreciation in material costs and raw material costs stemming from the rapid recovery in economic activity following the coronavirus pandemic, and constraints on supply chains such as logistics disruptions, is also expected to continue.
"At the same time, demand in the North American and European markets remains firm, while in the Japanese market, where recovery has been relatively moderate, orders to meet capital investment plans are steadily increasing. Asian markets are also showing signs of a turnaround. In addition, government policy measures around the world are expected to continue to drive infrastructure demand.
"Kito Group will continue to invest in manufacturing equipment for its production facilities in order to firmly capture all this widespread demand.”
Under such conditions, for fiscal 2022 (ending March 31, 2023), the Company expects to post record highs for both revenue and operating income, and is forecasting net sales of ¥70,000 million, with operating income of ¥6,500 million, ordinary income of ¥6,400 million, and net income attributable to owners of parent of ¥4,200 million.